Q. I got way behind on my mortgage and my mortgage company filed a foreclosure complaint against me. I decided to try and short sale the property. I got a buyer in October but the sale has still not been approved by my mortgage company.
I just learned my grandmother will not live much longer. I'm pretty sure I will be receiving some money when she dies. It's probably enough to pay my missed payments but not enough to pay off the mortgage.
Now I don't know what to do. If I decide I want to stay here, can I cancel my sale contract? Will the mortgage company let me just pay what I owe and resume my payments? I can't get anyone at the mortgage company to give me a straight answer.
A. Look at the terms of your sales contract. The typical addendum to a short sale contract states that in the event the seller's lender does not furnish written approval within "x" days of acceptance, either party may cancel the contract. The "x" is usually 60 or 90 days. So, if you are past this point, you could legally terminate the contract. If not, unless some other facts are present that would allow you to cancel, you could not legally terminate. Of course, a contract can always be terminated by mutual agreement.
Regarding your lender, you have certain rights under the Illinois Mortgage Foreclosure Law. You have the right to reinstate the loan within 90 days of being served and the right to redeem the loan within the longer of three months from the date of judgment or seven months from the date you were served. Your question involves reinstating the mortgage. When you reinstate your mortgage, you pay your lender all missed payments, late charges and attorney's fees. In return, your loan is reinstated and you continue on as if nothing occurred. Some lenders will agree to reinstate even though the 90-day period has elapsed.
Other factors to consider would be the value of the property vs. the balance of the loan (do you wish to continue paying on a property that is severely underwater?) and the impact of your action on your credit standing. Short sales and foreclosures obviously have a negative impact on your credit score.
Q. I am trying to sell my property and I have someone who wishes to purchase the property on a land contract. I remember a column you wrote some time ago warning about certain land contracts and certain terms that need to be avoided. Could you please refresh my memory?
A. Sure. Quickly, a land contract is an agreement whereby the buyer puts money down and agrees to pay the balance amortized over a certain period of time at a certain interest rate. There is usually a balloon payment, meaning that after a certain period of time (often one to three years), the balance must be paid off, either through a refinance or a sale. For example, the sales price may be $200,000 with the buyer putting $10,000 down. The $190,000 balance is amortized over 30 years with an interest rate of 5 percent and the balance to be paid after three years.
The buyer is able to obtain immediate possession of the property and start building equity without obtaining an institutional mortgage. Presumably after three years, the buyer now has built enough equity (or addressed whatever other issues may have been present preventing the procurement of regular financing) to obtain a conventional, FHA or VA loan.
The issue you refer to regards structuring the land contract so that it is not treated as a mortgage. This is important in the event the buyer does not comply with the terms of the agreement and you wish to terminate the agreement and regain possession.
Land contracts that contain installments to be paid in excess of five years or contracts that provide that at the time of payoff, less than 80 percent of the purchase price is due, must be terminated (foreclosed) pursuant to the Illinois Mortgage Foreclosure Law. This is a long and complicated process. Otherwise, land contracts are terminated simply by tendering a 30-day notice to the buyer and, in the event payments are not brought current, you would have the right to take action to obtain possession of the property. Generally, you would not be able to recover the missed payments.
• Send your questions to attorney Tom Resnick, 345 N. Quentin Road, Palatine, IL 60067, by email to firstname.lastname@example.org or call (847) 359-8983.